Calculating a fair occupational rental

The Property Poser experts return to the subject of occupational rental this week as a reader has asked how the amount is calculated and whether it should be equal to the monthly bond instalment that the purchaser pays on the property. The reader explains that the purchaser’s mortgage bond considerably exceeds the purchase price of the property.

The correct procedure

She feels it would be unfair for the purchaser to have to pay a higher occupational rental as a result of this inflated mortgage bond value and asks what the correct procedure is in determining the amount payable.

Schalk van der Merwe from Rawson Properties in Somerset West, Cape Town, says occupational rental is often paid by one party to the other following the conclusion of a sale of a fixed property.

“It generally becomes effective where the date of occupation granted to the purchaser doesn’t coincide with the date of registration of transfer.”

Van der Merwe says this could happen where the agreement is that the seller remains in occupation until a specified date or where the purchaser takes occupation before, and in anticipation of, the date of transfer.

The agreement of sale

“Thus, one of the parties will be in possession of the fixed property where he or she is not the owner, much like being a tenant in a rented property.”

The agreement of sale concluded by the parties regarding the sale of the fixed property usually makes provision for recording the occupational rental payable, says Van der Merwe.

“The amount should be negotiated and agreed upfront by the seller and purchaser. If there’s an agent involved, he or she will usually assist the parties in reaching consensus on the amount recorded.”

Using the purchaser’s monthly bond instalment as a guide is merely one method that could be used in this determination, says Grant Hill of Miller Bosman Le Roux Attorneys in Somerset West.

Assisting the parties

“In this instance, the increased amount would seem to be unfair to the seller if it is the seller who remains in occupation after the date of transfer.”

Hill says determining the value of the monthly instalment payable on a bond at the actual purchase price would not be difficult and the parties could easily ascertain this number should they agree that this would be an appropriate amount.

A fairer method

“Another, possibly fairer, method would be for the parties to reach agreement on the amount by considering what a fair rental amount for the area would be and the characteristics of the property concerned.”

In other words, they could agree on the amount payable should the property have been rented to a tenant in the usual circumstances, says Hill.

Set of factors

“Of course, the parties are contractually permitted to agree to any amount that they are satisfied with in the circumstances, which may or may not be based on any particular set of factors.”